1. Partners can understand their investment value. It is important for the investors of any business to know the value of their investment. This applies to investors who want to know the current value of their ownership relative to what they originally paid, as well as prospective investors who need to decide how much ownership they want to purchase or if they want to purchase at all. Whereas physicians can instantly check the value of their investments in publicly-traded stocks based on prices paid on stock exchanges, privately-held companies, like ambulatory surgery centers need to be valued periodically by a business appraiser.

Additionally, physician ownership in ASCs only complies with the Anti-Kickback Statute safe harbor when the terms on which the investment interest is offered are not related to referrals or other business generated by the physician. That requirement likely implies that investments must be priced at Fair Market Value, as an ASC that "under prices" ownership units could be construed to have offered units on terms that were related to the volume or value of the physician’s referrals.

2. Unit pricing can impact physician recruitment. In terms of physician recruitment, unit pricing can pose problems for ASCs because FMV for ownership shares may result in units that are priced higher than some surgeons can afford. Some successful ASCs and surgical hospitals have realized great appreciation in their ownership shares to the extent that they are no longer affordable to prospective buyers. In some cases, single ownership interests (1 percent) have exceeded $100,000. In these situations, it may be necessary to perform a stock split to make a single unit represent a one-half percent interest or a quarter percent interest or sell fractional interests so that units are affordable for new surgeons.

Sometimes it is important to communicate to prospective surgeon investors that their return-on-investment is the same, regardless of whether they own a half percent of the ASC or 4 percent of the ASC. It is a common misconception among some physicians that only buying a small ownership interest will result in less return-on-investment then other physicians who own larger shares.

3. Taking on new investors requires an understanding of your value. Pricing the ownership units you are trying to sell is the first step in recruiting new physicians. When you meet with a potential physician investor, the two most common questions they will have are "what will the ownership units cost?" and "what are the returns?" A business appraisal answers both of these questions and affirms that a third-party has looked over the ASC's information and made an independent assessment of the business's projected financial performance.

Any person that is selling ownership or stock will have biases. This may include the seller's need to recoup their initial investment or to present an attractive investment opportunity. These biases may conflict with a prospective investor's preferences to buy-in as low as possible and assess the business's future performance objectively.

4. Independent valuations are more attractive to risk-adverse investors. An independent business appraisal creates a valid assessment of the business without the biases of the person selling the ownership interests. This adds legitimacy to the pricing of the ownership units and the projected financial returns. Risk adverse investors may be disinclined to invest in a private company that may only prepare its financial statements once or twice per year.

A business appraisal provides a clear and objective picture of the business "as is" based upon information known or knowable as of the valuation date. From that point, a potential physician investor can more easily assess the relative impact his or her case volumes will have on the future of the business when they understand the current state of affairs. The old adage "buy low, sell high" is very relevant for ASCs because the instant a new physician invests, the value of the ASC typically increases.

For example, when an appraiser values a business, they look at the business as it is based upon information known or knowable as of the valuation date. This is not to say that an appraiser cannot factor in certain adjustments to revenue or expense expected to be realized in the future but not specifically related to the incremental revenue and case volume associated with the prospective physician investor. However, when a new physician invests in an ASC and becomes a meaningful user, there is an immediate impact on the business value. 5. Decreasing reimbursement escalators impact ASC value. Annual reimbursement increases or "escalators" from payors seem to have decreased or gone away altogether. Several years ago we often saw annual increases tied to Consumer Price Indices, but we observe this less in payor contracts now. Unless an ASC can show evidence of such escalators in their contracts, we generally do incorporate substantial annual increases on an anecdotal basis alone.

Our 2013 ASC Valuation Survey indicates that 53 percent of respondents believe an ASC with over 20 percent of its revenue from out-of-network arrangements has exceeded their risk tolerance. This can be a difficult situation for ASCs that rely on OON revenue to break-even. Going in-network usually involves committing to reimbursement rates that are substantially less with possible increases in case volume.

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